Nearmap Ltd

NEA Details

Complaint Against Nearbuy US, Inc.: Nearmap Ltd (ASX: NEA) is primarily engaged in online aerial photomapping in Australia & New Zealand. NEA utilises its camera systems and processing software, Nearmap, captures wide-scale urban areas in Australia, New Zealand, the United States, and Canada multiple times each year. Its products include Nearmap Vertical, Nearmap Oblique, Nearmap 3D and Nearmap on OpenSolar. The company has reported on 5 May 2021 regarding its trading halt on Australian Stock Exchange (ASX) due to a pending announcement in response to the potential legal proceedings. The trading halt will remain in place till the announcement is made or will commence trading on 7 May 2021. On 6 May 2021, NEA has further updated on the complaint filed against its subsidiary, Nearbuy US, Inc. in the United States District Court. The complaint filed by Eagle View Technologies, Inc and Pictometry International Corp. alleges patent infringement relating to the plaintiffs’ roof-estimation technology. NEA believes that business will remain unaffected by the complaint. Such news has weighed down on shareholders sentiments and seen a decline of ~23.30% in the stock price of NEA, after trading resumed on 6 May 2021.  

1HFY21 Financial Highlights: The company has registered an increase in its total revenue and other income to $55.41mn in 1HFY21 against $46.96mn in 1HFY20. NEA has posted a loss of $9.38mn in 1HFY21. The company has posted an increase in its cash and cash equivalents position to $129.32mn as on 31 December 2020 against $36.14mn as on 30 June 2020.

Current Assets Position (Source: Company Reports)

Key Risks: The company needs to keep its data secured from an unwanted source which may result in business loss for the company. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company. 

Outlook: NEA has provided its guidance for FY21 on its Annual Contract Value (ACV). The company expects its ACV to be in a range of $128mn-$132mn in FY21, up from its earlier guidance in a range of $120mn-128mn. The company is likely to invest in the development of HyperCamera3 and expects it to launch in FY22. NEA expects its net cash outflow to be less than $10mn in FY21 with the higher growth projections for ACV. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of NEA gave a return of ~-16.05% in the last one month and a return of ~-19.73% in the last three months. The current market capitalisation of NEA stands at ~$1.16bn as of 6 May 2021. The stock is currently trading below the average 52-week price level range of ~$1.505-~$3.220. On the technical analysis front, the stock has a support level of ~$1.50 and a resistance of ~$2.27. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of high single digit (in % terms). We believe that the company can trade at slight discount as compared to its peer median, considering an ongoing litigation charges for patent infringement and posting a loss in 1HFY21. For this purpose, we have taken peers Bigtincan Holdings Ltd (ASX: BTH), Reckon Ltd (ASX: RKN), Nitro Software Ltd (ASX: NTO). Considering the company has seen an increase in revenue in 1HFY21, an improvement in its cash position as on 31 December 2020, associated business risks, and valuation, we recommend a “Hold” rating on the stock at the current market price of $1.81, down by ~23.30% as on 6 May 2021. The stock is significantly down on the news of ongoing case filed by Eagle View Technologies, Inc and Pictometry International Corp. against NEA’s subsidiary, Nearbuy US, Inc. in the United States District Court.

NEA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Etherstack PLC 

ESK Details

Deal Update with Samsung: Etherstack PLC (ASX: ESK) is engaged in designing, development and deployment of wireless communications software and products. The company licenses its software and designs to companies that manufacture telecommunication equipment primarily for government public safety agencies and utilities. The Company operates in the United Kingdom, the United States, Japan, and Australia. The company has reported on 18 February 2021 that its subsidiary Etherstack Wireless Ltd has signed a deal with Samsung for total consideration of US$1.2mn. Under the deal, the subsidiary will provide license to existing technology for the integration of its services with telecom carrier market. 

FY20 Financial Highlights: The company has registered a decline in its revenue to $4.69mn in FY20 against $4.79mn in FY19. The company has posted a loss in FY20 to $2.30mn. ESK has seen an improvement in its cash and cash equivalent position to $4.18mn as on 31 December 2020 against $0.93mn as on 31 December 2019.

Current Asset Position (Source: Company Reports)

Key Risks: The company is exposed to technology risks. The company needs to be updated with its technology to gain business growth. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company.

Outlook: ESK is currently working on multiple carrier pursuits and expects carrier sales may occur during CY2021. The company expects its EBITDA for FY21 to outperform its EBITDA in FY20 due to strategic partnerships and contract wins during FY20. 

Stock Recommendation: The stock of ESK gave a return of ~-8.87% in the last one month and a return of ~-11.71% in the last three months. The current market capitalisation of ESK stands at ~$72.84mn as of 6 May 2021. The stock is currently trading below the average 52-week price level range of ~$0.120-~$3.700. On the technical analysis front, the stock has a support level of ~$0.53 and a resistance of ~$0.671. Considering an increase in cash and cash equivalents as on 31 December 2020, deal signed with Samsung, associated business risks, expectation of growth in EBITDA in FY21, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.565, up by ~0.892% as on 6 May 2021.

ESK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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